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  • 1. All About Stock Options

    My goal is to give you a basic understanding of what stock options are all about without hopelessly confusing you with unnecessary details. I have read dozens of books on stock options, and even my eyes start glazing over shortly into most of them.

  • 2. Check Out Auto-Trade

    Auto-Trade is a service offered by several on-line brokers. Auto-Trade makes it possible for an investor to carry out an options strategy in his own account without becoming an options guru or making all the trades on his or her own.

  • 3. Never Buy a Mutual Fund

    Never buy a mutual fund unless it is a no-load index fund with the lowest cost structure. (I will tell you where to find it later.)

  • 4. Turbocharge Your IRA

    Most smart people have set up a Roth IRA, 401(k), or other qualified retirement program. For some of them, it may be the only stock market investment they own.

  • 5. Double Your Money the Lazy Way

    In spite of the odds against winning, many people seem to like to invest in individual stocks – sort of like picking horses at the race track.

  • 6. The 10K Strategy

    The 10K Strategy is my favorite investment strategy. I have used it to make an average of over 50% a year for three out of four consecutive years. I have now added a twist to the strategy so that annual returns might be less than those years but there should be a much higher likelihood of its succeeding.

  • 7. Trading ETF Options

    Exchange-Traded Funds, or ETFs, are index funds that trade just like stocks on major stock exchanges. All the major stock indexes have ETFs based on them, including: Dow Jones Industrial Average (DIA), Standard & Poor’s 500 Index (SPX), and Nasdaq 100 Composite (QQQQ).

  • 8. Other Stock Option Resources

    Learn about some of my favorite stock option resources.

Elevator Pitch Story of Terry’s Tips

Terry Allen started the Terry’s Tips in 2001 as an educational newsletter  where various options strategies were tested in real time with real dollars. As many as eight portfolios were simultaneously carried out, each one in a separate brokerage account and paying full commissions. Subscribers saw every trade in every portfolio, and could follow one or more of the strategies in their own accounts, either on their own or through an auto-trade service offered by several brokers where all the portfolio trades were duplicated in their own accounts.

Over the years, many of these strategies enjoyed consistent gains for long stretches of time, only to see them all disappear in one disastrous day or week.  One strategy, however, seemed to out-perform all the other strategies over the long run.  We had dubbed it the 10K Strategy (because it was neither a sprint or a marathon, but something in between).

For the past five years ending through 2021, the 10K Strategy has notched average annual gains of over 60% in our actual portfolios after paying all the commissions.

For the first five months of 2022, extreme volatility came along (something that this strategy does not like), and we lowered our risk by retaining about half our portfolios in cash.  The market was down badly (S&P 500 off over 18%, the Nasdaq down 22%) but the composite 10K Strategy portfolios gained over 10% over these five months. This works out to a 20%+ gain based our amount at risk.

The 10K Strategy is sort of like writing calls, but on steroids.  Instead of buying stock and selling calls against your shares, we buy longer-term options (both puts and calls) which decay at a much slower rate than the shorter-term (usually weekly) options that we sell.  Since these longer-term options cost a fraction of what the stock would cost, the potential return on investment is considerably higher with this options strategy.

The key to the strategy is the difference between the decay rates of the long and short options.  The major challenge is managing risk by selecting strike prices both above and below the stock price, and balancing the risk profile of the positions on a daily basis.

Unlike owning stock, longer-term options are deteriorating assets, just like the shorter-term options that we sell.  Maintaining a comfortable risk profile requires nimble trading and balancing the positions essentially every working day or week. 

In short, it takes a lot of work. For this reason, most Terry’s Tips subscribers choose to select one or more of our portfolios (most based on ETF underlyings such as SPY, IWM, QQQ) and sign up for an auto-trade service to have all these trades automatically be made in their accounts. 

A broker you have probably not heard of, Tradier, coupled with a Toronto-based broker called Global AutoTrade, performs this auto-trade service for a flat commission fee of only $10 per month for our subscribers, saving them hundreds if not thousands of commission dollars each year.

Who is Terry Allen? Terry earned his MBA at the Harvard Business School and eleven years later, completed all the requirements except the dissertation for a Doctorate in Business Administration at the University of Virginia. As part of his academic work, he created a statistical model which calculated the theoretical value of any option based on several measurable variables.  The options market was just getting established, and option prices were extremely inefficient (either too-high or too-low).   

At this point, he dropped out of school and got a seat on the Chicago Board of Options and traded as a market maker on the floor of the exchange. His model enabled him to make extraordinary gains for several months until two professors at the University of Chicago published a similar model (only one variable not in Terry’s model).  This model, called the Black-Scholes model, (later to earn these professors a Nobel Prize), gave every trader the same advantage that Terry had enjoyed, and his extraordinary earnings were whittled away.

He returned to Virginia to complete his Doctorate, but was hopelessly addicted to options trading which he has continued to do virtually every day the market has been open ever since.  Options trading has been quite profitable for him, and enabled him to give away millions of dollars to charitable causes in his home state of Vermont, including building a large outdoor swimming pool for the Burlington Boys and Girls Club and giving away hundreds of thousands of dollars in scholarship aid to first-in-family college students at Champlain College where he served as a trustee for eleven years.

For nearly two decades, Terry has carried out personally or managed the portfolio trades of the Terry’s Tips portfolios.  In 2019, he brought in another (younger) experienced trader to manage these portfolios using the 10K Strategy, and the recent successful results are largely due to the efforts of his associate who totally understands the trading rules developed over the years at Terry’s Tips.

How to carry out the 10K Strategy: We have published a White Paper which spells out the precise Trading Rules for carrying out the 10K Strategy.  This White Paper is delivered to each new Terry’s Tips subscriber at the outset of his or her subscription.  Many subscribers sign up for a single month and learn all these Trading Rules, and watch the portfolios evolve each week for a month.  Then they cancel and carry it out on their own using an underlying that they like (any stock or ETF which trades options can be used as an underlying security).  That is fine with us.

Other subscribers realize the volume of effort involved in carrying out this strategy, and they continue on with us (often for many years) using an auto-trade service provided by some brokers, including Tradier.  This is even finer with us.

TERRY’S TIPS STOCK OPTIONS TRADING BLOG

March 27, 2023

March 27, 2023

Dear [[firstname]],

Here is your Option Trade of the Week, as included in this past weekend’s Saturday Report for our Terry’s Tips Insider Members. It was another post-earnings play, this time on a restaurant stock. Good luck with the trade!   

Terry’s Tips portfolios are on fire! The combined four portfolios had their best week in six weeks and have more than doubled the return of the S&P 500. The Honey Badger portfolio (it trades QQQ options) is up a whopping 24% so far this year! Don’t forget that our portfolios beat their underlying stock performance by an average of 22% in 2022.  

Don’t get left behind. For our loyal newsletter subscribers, I’m keeping the sale going that saves you more than 50% on a monthly subscription to Terry’s Tips.

You’ll get

  • A month of all trade alerts in our four portfolios, giving detailed instructions for entering and exiting positions.
  • Four to five (depending on the month) weekly issues of our Saturday Report, which shows all the trades and positions for our four portfolios, a discussion of the week’s trading activity and early access to our Option Trade of the Week.
  • Instructions on how to execute the 10K Strategy on your own.
  • A 14-day options tutorial on the opportunities and risks of trading options.
  • Our updated 10K Strategy white paper, a thorough discussion of the strategy basics and tactics.
  • Full-member access to all our premium special reports that can make you a wiser and more profitable options trader. 

To become a Terry’s Tips Insider Member, just Click Here, select Sign Up Now and use Coupon Code D21M to start a monthly subscription to Terry’s Tips for half off. You can cancel after a month but, of course, still keep all the valuable reports.

We look forward to having you join us! Now on to the trade …

Here’s The Beef

Darden Restaurants (DRI) – a sit-down restaurant chain conglomerate that includes Olive Garden, LongHorn Steakhouse and Capital Grille – reported earnings this week that beat on virtually every measure. Not only did the company top earnings and sales estimates, same-store sales growth also came in above expectations. And DRI upped guidance above the expected range. The company claimed that raising prices less than the rate of inflation drove higher sales.

Analysts cheered the news, though none upgraded the stock. Price target increases were plentiful, pushing the average to $159. But that’s hardly ebullient, as it sits just 4% above Friday’s closing price. That seems reasonable, however, unlike many so-called “growth” stocks.

The stock dropped less than half a percent after the report. Perhaps that’s because it rallied into earnings, a move that broke above a trading range that had contained the shares for much of this year. Despite the range, the stock has been in an overall uptrend since June, rising nearly 40%. The 50-day moving average has guided this rally, although here have been dips below it, the most recent coming earlier this month.

This trade is not necessarily a bet that DRI will continue rising. It’s more a defensive play that the stock will not suffer a serious decline and will remain above the 50-day (blue line) and the bottom of the recent trading range. We’re going a little further out of the money with the short put strike to add a measure of safety. That, of course, means the credit is less. Note that we are going out eight weeks, as DRI does not have weekly options.

If you agree that DRI will continue to trade in a range – or at least not weaken – consider the following trade that relies on the stock staying above $145 (red line) through expiration in 8 weeks:

Buy to Open the DRI 19 May 140 put (DRI230519P140)
Sell to Open the DRI 19 May 145 put (DRI230519P145) for a credit of $1.10 (selling a vertical)

This credit is $0.02 less than the mid-point price of the spread at Friday’s $152.58 close. Unless DRI surges, you should be able to get close to that price.

The commission on this trade should be no more than $1.30 per spread. Each spread would then yield $108.70. This trade reduces your buying power by $500, making your net investment $391.30 per spread ($500 – $108.70). If DRI closes above $145 on May 19, both options will expire worthless and your return on the spread would be 28% ($108.70/$391.30).   

Testimonial of the Week

I have been a subscriber for about a year. I autotrade in 2 different accounts, all your strategies. I read everything you write on Saturdays. I love your happiness thoughts and everything else. I usually do not communicate at all but I had to tell you how well my accounts with you are doing compared to everything else. You are awesome. Keep up the good work. Thank you. – Maya

Any questions?  Email Terry@terrystips.com.

Thank you again for being a part of the Terry’s Tips newsletter.

Happy trading,

Jon L

March 22, 2023

March 21, 2023  Terry’s Tips Trade Alert – Honey  Badger  Portfolio
 
We are adding a spread to raise delta:   

BTO 1 QQQ 19May23 310 call (QQQ230519C310)
STO 1 QQQ 31Mar23 319 call (QQQ230331C319) for a debit of $11.45 (buying a diagonal) 

Be prepared to change this (these) price limit(s) by $.05 or more in order to get an execution.

Happy trading.

Jon

March 20, 2023

March 20, 2023

Dear [[firstname]],

Here is your Option Trade of the Week, as included in this past weekend’s Saturday Report for our Terry’s Tips Insider Members. It was another post-earnings play, a strategy we’ve had success with of late.   

Before getting to the trade, I wanted to let you know that the Terry’s Tips portfolios are gaining steam. The combined four portfolios are beating the S&P 500, led by the Honey Badger portfolio (it trades QQQ options), which is up a whopping 19% so far this year! Don’t forget that our portfolios beat their underlying stock performance by an average of 22% in 2022.  

Don’t get left behind. For our loyal newsletter subscribers, I’ve decided to keep the sale going that saves you more than 50% on a monthly subscription to Terry’s Tips that includes …

  • A month of all trade alerts in our four portfolios, giving detailed instructions for entering and exiting positions.
  • Four to five (depending on the month) weekly issues of our Saturday Report, which shows all the trades and positions for our four portfolios, a discussion of the week’s trading activity and early access to our Option Trade of the Week.
  • Instructions on how to execute the 10K Strategy on your own.
  • A 14-day options tutorial on the opportunities and risks of trading options.
  • Our updated 10K Strategy white paper, a thorough discussion of the strategy basics and tactics.
  • Full-member access to all our premium special reports that can make you a wiser and more profitable options trader. 

To become a Terry’s Tips Insider Member, just Click Here, select Sign Up Now and use Coupon Code D21M to start a monthly subscription to Terry’s Tips for half off. You can cancel after a month but, of course, still keep all the valuable reports.

We look forward to having you join us! Now on to the trade …

If You Build It …

They will buy. At least that’s what homebuilders think based on the latest builder confidence survey, which ticked higher for the third month in a row. On Wednesday, the Census Bureau will release February’s residential construction numbers, and the market is expecting gains in starts and completions.

On the company level, Lennar (LEN) reported earnings this week that easily beat on the top and bottom lines. The company also projected home sales for next quarter and the full year that are higher than the consensus analyst estimates. The stock received several target price increases, though no ratings upgrades. The average target price is about 10% above Friday’s close, while the average rating is between a buy and hold. Given that the stock is up nearly 50% in the past five months, it seems some analysts are behind the curve.

The stock is currently riding along the support of its 50-day moving average which came into play after a pullback from a 52-week high hit in early February. The stock pulled away from this trendline after the earnings report, though not far enough to take its support out of play.

Note that the short strike of our put spread is below the 50-day (blue line) and the 20-day (red line), which has turned higher. Thus, the stock will have two pierce two levels of support to move the spread into the money.

If you agree that LEN will maintain its long-term uptrend, using the support of its 50-day and 20-day moving averages, consider the following trade that relies on the stock staying above $97.5 (green line) through expiration in 5 weeks:

Buy to Open the LEN 21 Apr 95 put (LEN230421P95)
Sell to Open the LEN 21 Apr 97.5 put (LEN230421P97.5) for a credit of $0.55 (selling a vertical)

This credit is $0.02 less than the mid-point price of the spread at Friday’s $103.50 close. Unless LEN surges, you should be able to get close to that price.

The commission on this trade should be no more than $1.30 per spread. Each spread would then yield $53.70. This trade reduces your buying power by $250, making your net investment $196.30 per spread ($250 – $53.70). If LEN closes above $97.50 on Apr. 21, both options will expire worthless and your return on the spread would be 27% ($53.70/$196.30).   

Any questions?  Email Terry@terrystips.com. Thank you again for being a part of the Terry’s Tips newsletter.

Happy trading,

Jon

Upcoming Market Dates:

Monday, February 20th. Market closed for Washington's birthday. Friday, April 7th. Market closed for Good Friday.

Making 36%

Making 36% – A Duffer's Guide to Breaking Par in the Market Every Year in Good Years and Bad

This digital book may not improve your golf game, but it might change your financial situation so that you will have more time for the greens and fairways (and sometimes the woods).

Learn why Dr. Allen believes that the 10K Strategy is less risky than owning stocks or mutual funds, and why it is especially appropriate for your IRA.

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